What Are the Implications of Non-Compete Clauses in Employment Contracts?

Have You Landed a New Job?

Congratulations! There are few things in life that are as exciting as getting a new job. You’re already daydreaming about where those paychecks are going to go. Getting caught up on your bills will feel so liberating, and maybe you’ll have enough left for that long overdue trip. There are so many possibilities!

You have probably been happily filling out the paperwork that HR supplied, getting them copies of your driver’s license and other necessary documentation. Still, then you come across something you might not have seen before.

What the heck is a non-compete clause?

What is a Non-Compete Clause?

While going through the onboarding process, you may come across something called a “non-compete” clause in your employment contract. There will likely be a paragraph below the non-compete clause giving you a light description of how the company defines non-compete.

A non-compete clause is an agreement made in addition to an employment contract. When you sign a non-compete clause, you are agreeing not to work for a direct competitor of your employer during your employment and, sometimes, even for a certain amount of time after your employment has ended.

Non-compete clauses can also prevent you from starting a competing business while working for your employer.

These laws are designed to protect the best interest of your employer. They are trying to prevent employees from working for their competitors and possibly siphoning trade secrets, client information, or other valuable information that is valuable to your employer.

Non-compete clauses can last from a few months to years after your employment with that employer. The nature of the job, as well as the wording of the clause, can greatly affect the time frame of the non-compete clause’s validity.

Are Non-Compete Clauses Enforceable in New York?

Like many things, states govern what is and is not enforceable in an employment contract. Many states are moving away from enforceable non-compete agreements because of the impact they can have on people during and after employment.

Non-compete agreements and clauses are becoming less acceptable because they prevent enterprise. The United States is built on a free market, with the belief that competition forces businesses to govern their prices in order to remain competitive in the market. When a contract prevents someone from starting a similar company, it prevents competition, which prevents enterprise and interferes with the free market.

This doesn’t mean all states are moving away from these types of agreements or clauses.

Luckily, New York is one of the states that recognize the anti-competitive nature of non-competes. Non-compete clauses are not enforceable in the Empire State.

It is important to remember that even though these agreements are not enforceable in New York, employers may still have you sign a non-compete agreement when you start employment. There are many reasons your employer may continue having their employees sign such agreements, but the most likely is it acts as a “scarecrow,” or a way of trying to deter employees from holding employment with their competitor, or stops them from starting their own business that may compete for their client’s attention.

Another reason employers may continue to include a non-compete clause in their employment contracts is because they legitimately have trade secrets they are trying to protect.

Does This Mean Non-Compete Clauses are Useless?

When determining whether or not to enforce a non-compete clause, the New York court system will determine whether or not a breach of this agreement compromised an employer’s trade secrets, customer relations or leaked confidential information.

While it is rare, the court may choose to enforce a non-compete clause when there is proof that an employee or former employee shared this information or used their access to this information.

New York courts will determine the legitimacy of the non-compete agreement by examining three factors:

The Geographic Scope of the Restriction

New York courts usually conduct a fact-based analysis to determine whether a geographic restriction in a non-compete agreement is reasonable. If the restriction is short, they may be willing to enforce a broader geographic restriction.

The Duration of the Restriction

New York courts have repeatedly approved a clause’s restrictions as long as they are six months or less. These are examined on a case-by-case basis, as the court can determine the clause’s enforceability based on the employer’s considerations and what they are attempting to protect using the clause.

The Scope of the Business Activity Impacted

New York courts will not enforce non-compete clauses where the scope of the business activity impact is deemed too broad or not deemed necessary to protect trade secrets or other confidential information.

Do You Feel Like You Are Being Taken Advantage Of?

Now that the dust has settled and some of the excitement of a new job has died down, you may find yourself in a situation where you are worried about that non-compete agreement you signed way back when. You may have been with the company for a decent amount of time, and now you want to use that experience to start your own business. Perhaps another employer has noticed your skills and they have made a very appetizing offer.

And now you are wondering if that contract will come back to haunt you. Or it has already become an issue, and your employer is threatening you with legal action if you start that company or take that offer.

That’s when you should speak with an experienced business attorney, like the ones you will find at Fisher Stone, P.C.

Call 516-908-9515 to schedule your free consultation with a team that fights for the rights of workers!